Hospitality Industry: Losing the Fight for Survival

Haile Gebreselassie’s take on business after COVID-19

Covid-19 is the ultimate test to evaluate ourselves individually, our systems nationally and as a global society. Economically, I understand covid-19 from two perspectives; the damage and opportunities it might hold. The hotel and tourism industry in Ethiopia is the most affected since our entire tourist clients were from Italy, France, Holland, German, USA and Asia, countries seriously affected by the pandemic. With the number of jobless people in the USA going well over 30 million and others experiencing severe economic malaise, I do not think they would be planning vacation. The number and frequency of international and domestic meetings, exhibitions and conferences has plummeted. After covid-19, our businesses went from positive to deep negative. My six hotels are idle but we are paying six million Birr each month for our 3,000 employees and running expenses. Zero would have been nice. Our debt is piling because we have no income; we just incur expenses.

There is no rich and poor, giver and taker, at this time. Investors are now burdened with a huge debt. I lost ETB200 million from Marathon Motors. The price of the specialty coffee we export dropped at international market, but the government is not willing to allow us sell it in domestic market. At least that way we could have covered the hotel expenses.

The inauguration of the seventh Haile resort was supposed to be held in Adama in early May 2020, but it could not be realized because the furniture we ordered from china could not arrive due to the pandemic. Four more hotels were also in the pipeline in Addis Ababa, Sodo, Konso and Debrebirhan.

Any hotel in Addis Ababa that currently rents two of its 100 beds must be lucky. In fact, the hotel business in Ethiopia was already declining before covid-19 due to waves of political unrest in the country. For instance, it was declining in southern cities due to the Sidama conflict. Then the instability surged during consecutive political conflicts across the country. However, the decline during the political instability is by far better than covid-19. Many factories and hotels were set on fire due to the political unrest and the economy was disrupted.

The priorities every tourist considers before leaving for a country are peace, stability and safety. They want to be sure their family can spend the night outdoors. Based on our survey of our customers, most tourists feel unsafe in Ethiopia and have security concerns. For instance, during the political turmoil in Egypt, the tourist flow dropped from 20 million to two million, but the tourism destinations were still there.

The other critical problems in Ethiopia are absence of affordable rooms near the destinations and lack of infrastructure. We supply water for most of our hotels from wells we dug ourselves. We deploy two generators for each of our hotels because power outages last for a week in regions. A lot of international athletes who stayed at Yaya Village for training complained of absence of internet and power. They compare it with Sanloren, a modern village in Switzerland, equipped with power and technologies 24 hour.

The tourist evaluates the destination finally, next to security, safety and their expenditure capacity.
The problem in Ethiopia’s tourism is not absence of promotion or marketing the destinations to international tourists. There are a lot of natural, cultural and historical destinations known globally. Even the country’s natural and most balanced weather can be heaven for tourists.

It is difficult to exit the industry, once you invest in hotels. When I first invested in the hotel in Hawassa, I went through all the difficulties you can imagine and finally the revenue was very disappointing after all that investment. I was angry that I opened the second in Shashemene. Many people asked me I must have got good profit from Hawassa. I said yes. I continued expanding with loss. Finally I learned a business is headache but eleven businesses is profit. Some businesses compensate the others and cancel out the headache.

Government policy and strategy for the tourism sector, including the implementing Ethiopian tourism organization (ETO), targets marketing Ethiopia’s tourism destinations to the international tourist. This is profoundly wrong. The objective should be developing infrastructure around the destinations, increasing hotel numbers and quality, and training manpower for the hospitality sector, which is also one of the major problems we face.

Although Ethiopians are accounted as a hospitable society, it only works at homes as they are also proud people outdoor. When I see Ethiopian waiters not being attentive enough to customers, I am reminded of the near-worship service of Philippinoes. If the government worked on these issues, we could increase our tourist flow three times more than that of Egypt’s 20 million visitors. Currently the flow to Ethiopia is a mere 1 million.

There are Ethiopian embassies all over the world with expenses covered by public tax. They should be the ones who brand and sell Ethiopian coffee, not Haile. I have welcomed countless foreign diplomats and investors in this small office of mine. All of them bring business ideas that benefit their countries. I doubt whether Ethiopian diplomats in other countries are working to that extent.

The Way Out of the COVID-19 Trap
The simplest option for hotels to relieve themselves off the pressures of the pandemic is closing down. It is possible to save a lot of things by closing, but it also affects a lot of employees and families. We calculated closing is the only option for my hotels. I would not close. The situation would improve if the government controlled migrants crossing borders illegally to Ethiopia, especially from Djibouti, Kenya and Somalia. This increases the spread of the pandemic.

Basically I do not think corona is a big issue. Coronavirus can be avoided simply by following the health instructions. It also does not restrict anybody from going out alone and cultivating their farms or working in a factory. And eventually it will disappear through time or the use of vaccine. It will, however, leave a big scar on already declining economies like Ethiopia. It will take us longer to recover. The whole media is telling us to stay home and sit down; I cannot let them lose their jobs and die of hunger. An economist would never advise this. I would not sit home and see my wife and children die of hunger.

Ethiopia is not rich enough to place food in front of citizens’ doors like in Europe and the USA, who are also paying their workers to stay home. Every CEO is unprepared and non-privileged under covid-19. So they look for available venues to survive. Likewise, our plans to change the damage to an opportunity would only be realized when everybody discharges their duties. Blaming the private sector, the government and individual employees will not save anyone. The three must act in coordination.

I propose that the government postpone debts and cut interests. At the same time, providing soft loans would help. We are not asking the government to do what European governments are doing. For instance, my friend who is an investor in Holland told me the government is paying salary for their employees. But here I am paying my employees from my own pocket. But I cannot do this after three months unless the government intervenes or covid-19 goes away. So many businesses in the hospitality sector are faced with the same predicament.

The government must thus ensure stability and financial institutions must inject finance. For instance, the decision to skip income tax is commendable as it has enabled employers keep employees on the payroll. Something is better than nothing. However, income tax can be retained, if the employer has the ability to pay salary in the first place.

The government must look at what other governments are doing in Kenya, Rwanda or Uganda. We are in treatment time, which means we must look for the cure that can go up to surgery. Skipping income tax is one medicine. But we must look for another, since it is not enough. The national bank must look into the ways of creating the medicines. It is of course problematic that some businesses have already taken huge loans that do not match what they are doing. Such issues make it difficult for the government and I cannot blame them. For instance, the Development Bank of Ethiopia (DBE) wasted huge amount of capital and resource.

On the other hand, there are many opportunists out there that look for loopholes to manipulate the system during such critical times. For instance, during the conflict in Sebeta, some companies like Ayka Addis lodged for compensation. As soon as they got the lump of loans, they fled the country without even paying the initial capital loans. Again, such unstable times under covid-19 open the gate for parasites. At the end of the day, it is the poor taxpayer who pays the country’s debt.

On the other hand, there are three opportunities for Ethiopia. The 7.1 billion global population needs food, which cannot be replaced by any technology. This food can be produced in Ethiopia. We can make Ethiopia a global leading bread basket. It is important to see what happened to the fuel industry. Currently, the price of oil is less than the price of the barrel. America is selling oil at loss. One can take oil almost free, if they can return the barrel. But in Ethiopia, everything can be cultivated, and it is assured businesses will never lose because the demand always rises. This can be achieved if everyone acts together.

The second opportunity is for Ethiopian Airlines. I believe it is time for Ethiopian Airlines to outshine globally. Most of the strong airlines in the world are currently crumbling. Strong airlines like virgin air, united and many top airlines are weakening. There is no active airline in Africa. Most of the global airlines are currently frustrated because they will lose value in the stock markets. This is a big opportunity for ET. We must react faster. This is the time for strong prospects to overtake the top.

Once covid-19 is gone, the world will be in a ruthless competition to revive faster and compensate the damages. Hotels must get prepared for that. We cannot benefit from that competition unless we get improve in folds. Our hotels and service providers must be competitive in price, quality and everything. We must work hard so the first wave of tourists in post covid-19 will come to Ethiopia.

Luckily, Ethiopia does not have a huge number of covid-19 cases so far, which is the third advantage. Most industries are closing now. They must, at once, produce supplies that are enough for five months. Factory workers are in for a 16 hours work day. Unless we increase productivity and start accumulating supply from now, we cannot be competitive when the market reopens. We also need to reduce unnecessary expenses individually, as business, and country.

We cannot solve the current problems with existing expertise. We need the best crisis management experts. Otherwise, the process will be longer and we miss the targets. In fact, it is all about protecting our health but it is also about maintaining productivity at the same time. It requires capable and bright people to show the way forward.

We need many think tanks and expert groups at this time. Education, agriculture, industry and the service sectors need specialized mechanisms. For instance, currently it is crop cultivation season ahead and desert locust is spreading across the country, besides covid-19. Averting this requires working tirelessly day and night.

All problems rolled down over the last decade must be solved immediately. Inputs and finance must be supplied for agriculture. The land policy issue also needs solution. Federal and regional governments must be on the same page. We cannot pass the difficult time ahead with our slow-motion pace. We also need to be cautious that the stay at home will not breed a culture of laziness. Active people who used to wake up and work at 5am sleep late now. But this should be over as soon as the outbreak is under control.

9th Year • Jun.16 – July.15 2020 • No. 87

Haile Gebreselassie

is a legendary Ethiopian Athlete turned businessman. His companies are engaged in agriculture, real estate, authomotive, art and hospitality. He is also widely known as a founding shareholder of several banks.

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